It is no secret that the IRS has increased audit activity against organizations filing questionable tax credits in recent years. Where appropriate, the IRS may assert accuracy-related penalties ranging from 20% to 40%, as well as a civil fraud penalty of 75% on underpayment of tax with respect to unsubstantiated tax credits taken.
The IRS suggests that taxpayers who are considering claiming one or more of these credits take precautions (e.g., consult with an independent advisor) to avoid filing unsubstantiated returns that won’t withstand audit scrutiny. Likewise, those who have already filed are also advised to consult an independent advisor, and consider filing an amended return, if deemed necessary.
Whether your organization is currently considering pursuing such tax credit(s), or has already done so, having an independent advisor conduct an analysis to evaluate your ability to withstand IRS scrutiny is often a good idea. Common situations when such evaluation/analysis can prove useful include those claiming (or who have already claimed):
- Research & Development Tax Credit
- Employee Retention Tax Credit
- Work Opportunity Tax Credit
- Cost Segregation (§1245/§1250)
- Energy Credits (§179D or §45L)
Our law firm is available to evaluate your tax credit filing (whether before, or after the fact) and advise on any corrective action(s) available to mitigate potential adverse consequences against your organization.
In addition to IRS tax credit audit defensibility analysis and tax opinions, we also defend focused tax credit audits (R&D, Employee Retention Tax Credits, Cost Segregation, WOTC, etc.).
- Conduct interview with key team member(s) and advisors to determine level of evidentiary substantiation available.
- Research relevant law to determine whether your organization more than likely satisfies eligibility requirements.
- Provide a written audit defensibility analysis report or tax opinion with our findings, including potential areas of concern (when necessary).
- Our firm is also available for defense in tax credit focused audits, should the need arise (additional fee required).
A. A tax credit is a legal and legitimate way for a business to lower their tax liability, so long as the claim can be substantiated with appropriate evidentiary support.
Q. What is the difference between a tax deduction and a tax credit?
A. Tax deductions are claimed by businesses to reduce taxable income ((e.g., advertising expense, office expense, utilities, etc.) , while tax credits are subtracted directly from a company's tax liability.
Q. What is the statute of limitations for tax credit related fraud?
A. It depends, but typically, statute of limitations fall within 3- or 6-years:
-- 3 Years: For most returns, the IRS has a 3 year statute of limitations from the due date. Generally, that would mean 3 years starting April 15th of that tax year. For those who receive a tax extension, that would mean 3 years starting October 15th of that tax year. In the event that you file your taxes late, your 3-year statute of limitations still begins on the day that your taxes were due.
-- 6 Years: In the event that you’ve made a “substantial understatement of your income”, meaning you’ve underreported by 25% or more, the IRS has 6 years from your tax due date to audit you.
Q. What is the cost of this service?
A. Our tax credit fees are based on our flex-fee structure, and all costs are pre-approved by you when you decide to hire us. There are no surprises, no add-ons. Because every situation is different, we recommend you Schedule a Tax Consultation so we can discuss your situation in detail.